Property rights are inexorably linked to taxes, largely because property taxes are often one of the easiest taxes to collect, particularly in developing markets with significant informal sectors. Indeed property taxes are often levied and paid around the world even when citizens lack deed or title to their property. From the point of view of the government, the details of who owns the property are often less important than the fact that the tax is paid – and threat of demolition or foreclosure is often enough to ensure that occupants pay the tax, whether they are the legally recognized owner or not.
Unfortunately, in many emerging economies, property tax appraisal and revenue collection is done in a way that lacks transparency. The process is often manual and conducted through physical visits to the property, which creates ample opportunity for rent seeking by the assessor and/or tax collector, and leaves citizens with little faith that their taxes ever make it into government coffers. Furthermore, property taxes are often seen as inequitable, with political elite, cultural leaders and large-scale land owners perceived as not paying their fair share. Greater transparency and improved collection processes can help eliminate the perception, and sometimes the reality, of this disparity. Broad-based property taxes can ensure more efficient land use and encourage large land holders who are not making productive use of the land to divest themselves of property.
A recent article in The Economist highlights the use of property tax as one of the most efficient and least distortive ways for governments to raise funds, particularly in emerging economies that on average earn less than 2% of revenue from property taxes – as opposed to the average of 5% in developed economies. Property taxes are particularly important for emerging economies seeking to decrease their dependence on international aid. Property taxes can also help create a closer link between citizens and government. When citizens pay taxes, it creates a greater degree of accountability by the government regarding how tax revenues are spent and a pressure from tax payers to ensure tax income be invested locally.
These themes – taxes and transparency – were a major focus of the 2013 G8 Summit in Northern Ireland, which featured commitments from G8 countries to establish the automatic exchange of information between tax authorities and improve transparency in land transactions. In coordination with these commitments, the U.S. has announced two partnerships: one with Burkina Faso to improve transparency in land governance and one with Guinea to improve transparency in extractive industries.